New TPP could hurt NAFTA talks because of impact on U.S.: auto sector

American imports into Canada could fall by $3.3 billion under the recently rebooted Trans-Pacific Partnership, the federal government has concluded, sparking fears the new pact could hurt the ongoing NAFTA renegotiation.

The text of the 11-country Pacific Rim trade deal — a pact President Donald Trump pulled the United States out of last year — was released late Tuesday, but a Global Affairs Canada analysis of the deal also delves into the impact on the North American Free Trade Agreement talks, which are to resume in five days in Mexico City.

The Trump administration has blasted trade deficits with Canada as an underlying reason for wanting to renegotiate or tear up NAFTA. The Canadian government rejects that position, saying the statistics don’t back the U.S. deficit assertions.

But the most recent analysis of the new TPP — known by the acronym CPTPP — predicts lower U.S. imports into Canada.

“Under the CPTPP, Canadian exports to the United States are not expected to change significantly as the United States is not party to the CPTPP. However, there would be a decline in imports by Canada from the United States, resulting from erosion of U.S.’s NAFTA preferences in the Canadian market,” the analysis says.

“Total Canadian imports from the United States are projected to fall by $3.3 billion, led by a decline in automotive products imports.”

Major obstacle

Flavio Volpe, the president, of Canada’s Automotive Parts Manufacturers Association, says that will hurt Canada at the upcoming NAFTA round, where auto remains a major obstacle between Canada and the U.S.

“The report states that U.S. imports into Canada would drop $3.3 billion, mainly in automotive. If true, that is a gap smart U.S. negotiators could then be seeking to close in NAFTA 2.0,” said Volpe.

Canadian auto workers and manufacturers have been critical of the new TPP, including the government’s assertion that it has gained more access to the protected Japanese market.

International Trade Minister Francois-Philippe Champagne has said a side letter with Japan guarantees greater access and enshrines a dispute resolution mechanism. But that side letter and others with Malaysia and Australia have yet to be made public.

The government’s analysis also says, “production in the automotive sector is expected to rise very modestly, by $206 million.”

The analysis concludes: “The impacts on the automotive sector are slight, with a small increase in output and exports.”

Volpe dismissed those predicted gains as insignificant. He said the gain would amount to only $171 million by 2040.

“Contextually, the Canadian auto sector ships about $85 billion in goods annually. This 22-year increase represents approximately 0.2 per cent on that number and when one accounts for inflationary dynamics, this represents a serious decline in real dollars.”

Economic gains

The government analysis also concluded that the agreement would generate long-term economic gains for Canada totalling $4.2 billion, up from the $3.4 billion that was expected under the old TPP. The increase is due to improved access to member nations in the absence of U.S. competition.

Champagne said now that the full text of the 11-nation trade pact has been released, it will be signed March 8 in Chile.

The analysis suggests that the net benefits are greater for Canada now that the United States has withdrawn from the agreement.

The destiny of the trade pact was cast into doubt late last year after Trump pulled the U.S. out. But Canada and the remaining members of the old TPP agreed to a revised trade agreement on Jan. 23 that would forge ahead without the U.S.

The U.S. pullout left Japan as the largest player in the revised 11-nation pact that spans two hemispheres and includes both U.S. neighbours.

“Through the CPTPP, Canada will soon have preferential access to half a billion consumers in the world’s most dynamic and fast-growing market,” Champagne said in a statement late Tuesday.

“We wanted a good deal, and that’s what we got for Canadian workers and their families.”

The analysis also said the gains would cover a broad range of sectors, including some agricultural products such as pork and beef, wood products, machinery and equipment, and transportation equipment.

The federal government says the trade pact covers 495-million people with a combined gross domestic product of $13.5 trillion, or 13.5 per cent of global GDP.

The 11 nations in the CPTPP are Canada, Australia, Brunei, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam.